O'Sullivan: Government fiddles as Air NZ burns

By FRAN O'SULLIVAN

Prime Minister Helen Clark's Government has shown itself to be appallingly incompetent over its management of Air New Zealand's financial plight.

The Government has now left the airline teetering on the brink of financial disaster for more than three months as it plays "we know best" with the ownership structure of the national flag carrier.

Instead of allowing the Air New Zealand board to quickly recapitalise the airline by raising the ownership cap, the Government has played geo-political games with Australia and Singapore over which alliance it favours in the aviation market.

The Air New Zealand board wanted Singapore Airlines, arguably the world's best airline, to increase its shareholding to 49 per cent and lead a recapitalisation.

But Clark's Government, with its anti-business bias, instead entertained a Dutch auction with Qantas, the suitor Air New Zealand did not want.

Meanwhile, the losses have snowballed.

If that wasn't bad enough, more was to come.

The extraordinary performance of Finance Minister Michael Cullen - who chose to go on national television last Thursday and blurt out that the airline's finances were far worse than had been reported - exposed Air New Zealand to the awful consequences of such injudicious comments.

Clark's Government can go into spin overdrive on this one. But throughout the Australasian news media and on CNN, Cullen's extraordinary lack of commercial nous has been damned.

Air New Zealand's board and the Government have known for more than three months that the national flag carrier was headed inexorably towards the knacker's yard if a major recapitalisation could not be arranged.

The last thing it wanted was for the Finance Minister - himself privy to much "commercial in confidence" information about a business the Government does not know - to send its share price through the floor with extravagant comments.

Air New Zealand put the red flag up six months ago when former chairman Sir Selwyn Cushing indicated the airline's ownership cap, which restricted major shareholder Singapore Airlines to a 25 per cent stake, needed to be raised so a recapitalisation could take place.

Cushing's warning - made in the context of Air New Zealand's announcement of a $127.2 million loss for the December 2000 half-year - did not get above the Government's radar level.

But three months later, Cushing put the flag up yet again.

In a Herald interview, Air New Zealand's chairman warned that the Government would have to raise the ownership cap or face the likelihood of having to get its chequebook out and stump up $500 to $700 million to recapitalise the airline.

The Beehive reaction was swift.

Air New Zealand management put out a cover story and Cushing denied that he had spilled his guts on the issue. But it was simply a sign of things to come.

It exposed a Government dangerously out of step with the needs of business.

For months the Government has repeated the mantra: It's not our preference to be involved with airlines but it has an overriding interest to ensure the airline survived. That it was strong and viable and could promote the brand and offered competition both domestically and internationally.

The airline chiefs deserve blame for failing to point out the urgency.

But the airline game depends on confidence. Just as with banking, once the public plug is pulled the situation quickly gets to crisis level.

Over at Air New Zealand headquarters this weekend overworked executives who have sweated to keep the lid from blowing on the bleak nature of the airline's financial outlook were fast losing patience with the Government's intransigence.

"If they had wanted us to ditch Ansett, they were going the right way about it," was one comment.

"It's the difference between think big or think small," was another.

Their frustration is tangible and heartfelt.

One month ago - in a speech that was underreported in New Zealand - Air New Zealand chief Gary Toomey said the airline was "fast approaching the point of no return".

Air New Zealand could go forward to its goal of being a top-20 world airline with an Australasian base, or it could divert to become a smaller South Pacific operation with a limited international focus.

Toomey added: "We remain hopeful but concerned that the critical decisions can be made before the end of this month because we are at the point of no return."

His stance was in sharp contrast to his words after the Herald's May story: "The suggestion that we need it [$500-$700 million] as a bailout to stay in business is simply false. The board, however, is concerned that the airline's current shareholding structure - particularly the 25 per cent cap on foreign ownership - severely restricts its ability to raise enough development capital through share issues.

"Internally, the possibility of seeking some transitional funding from the Government had been discussed in the event that the Government considered it was too risky to make a structural change that would provide ... access to a broader equity market before there is a broader deregulation of the international aviation market," Toomey said.

News that Air New Zealand subsidiary Ansett Australia is losing $1.6 million a day has concentrated minds.

Today we will get an inkling if the Government has learned anything from this debacle.

Its action means Air New Zealand's opportunity to bank a Singaporean cheque on favourable terms has gone.

The Government is now in a classic lose-lose situation. Singapore Airlines is poised to get Air New Zealand shares at firesale prices, if it wants them, and the Government has pulled itself into the play and may have to write a cheque.

The Government expects Singapore Airlines and Brierley Investments to stand behind the airline in its moment of crisis and pump in extra capital. But the upside is much less now.

The Government can force Air New Zealand to cast Ansett Australia adrift.

But if it does so, it will be misusing its powers as holder of the Kiwi Shares.

The Singapore proposal should have been grabbed with both hands six months ago.

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